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Take note and remember: Puma’s E P&L, Higgs Index, EcoIndex

Full Cost Accounting

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In the last article, I’ve looked a bit more into what True Cost Accounting is all about, and why it is a relevant – if far from sufficient – step forward in the sustainability discussion, far beyond the fashion industry.

Today, I would like to look hence a little bit closer into what the three large apparel industry initiatives in this area are really about. The three initiatives are:

  • Puma’s Environmental Profit & Loss Accounts rel=”nofollow” (E P&L), which assesses the monetary value of internalised and externalised risks in relation to water, CO2, land usage, as well as a basic set of green house gasses and waste.
  • the EcoIndex, developed by the American and European outdoor industry associations, assesses product impacts within six life cycle stages: Materials; Packaging; Product Manufacturing and Assembly; Transport and Distribution; Use and Service; and End of Life.
  • the Higgs Index measures the environmental and social performance of apparel products and the supply chains that produce them. It enables companies to evaluate material types, products, facilities and processes based on a range of environmental and product design choices, and is developed by the Sustainable Apparel Coalition (SAC), a conglomerate of the world’s largest retailers and manufacturers, launched by Patagonia and Walmart, and with multi-national such as Inditex, H&M or Cotton Inc. among its members.

All three of these approaches are ‘cradle-to-grave’ approaches at their core. This means that for the time being they choose to ignore any post-purchase impact a product may have.
Both, EcoIndex as well as Higgs Index show first steps in remedying this however, by collaborating with Nike’s Considered Design initiatives, which indeed does have the potential to improve a products performance at its ‘end of life’ stage.

Puma Environmental Profit & Loss Accounts

In general terms, an E P&L is a method of monetary valuation and analysis of its environmental impacts including its business operations and its supply chain from cradle-to-gate. An E P&L internalizes externalities and monetizes the cost of business to nature by accounting for the ecosystem services a business depends on to operate in addition to the cost of direct and indirect negative impacts on the environment. (Source: Wikipedia).
In Puma’s case, the E P&L has not been developed to a product level just yet, but is only applicable to the company as a whole.

In order to do that, Puma had to a) investigate their supply chain and b) then put $/EUR price tags on eco system services and the resulting impacts such as water and air pollution, and waste.
Puma found that if billed, eco system services would cost them EUR 145 million for the year 2010. Of that amount, only EUR 8 million resulted from Puma’s direct operations, while the remaining EUR 137 million was attributed to supply chain activities, areas where the company is not legally – but very much so morally – required to intervene.

The hands-on and field work was done for Puma by PriceWaterhouseCoopers and TruCost. These companies used sophisticated, but overall established modelling techniques to come up with a final figure for carbon emissions and water use respectively. In terms of carbon emissions for Puma’s raw materials, PWC used an economic input-output model based on government industry data. For water, TruCost drew heavily on studies by the United Nations’ Food and Agriculture Organisation regarding water scarcity.
The numbers imply a fair bit of (well researched, and educated) guess work of course, and are not 100% accurate. But they do give a fairly accurate ball park figure for what is going on in their operations, and which areas may cause trouble in the mid to long-run.

    To read more:

  • For a critique and some insights about the guess work that had to be made in order to complete the E P&L, read this 2011 Guardian article.

EcoIndex

The Eco Index is an internal supply chain tool.

It uses environmental guidelines, environmental performance indicators, and environmental footprint metrics to assess the impacts within six product life cycle stages: Materials; Packaging; Product Manufacturing and Assembly; Transport and Distribution; Use and Service; and End of Life.
The system for now collects such data about different (potential) suppliers, with the idea to help (outdoor) apparel companies find better suppliers.

The EcoIndex’ strength is its structural frame work that break the different impacts down into areas that then can be tackled systematically. It also allows suppliers to be rated by which area they perform well, and were they still have to put in some work.

The EcoIndex also collaborates with Nike to make use of the company’s exhaustive data base for materials and products, which help designers do their job better: the Environmental Apparel Design Tool is targeting the design stage of products specifically, by offering detail material performance data. It is in essence a modified lifecycle analysis for materials. And since research has shown that at least 60% of impact comes from the materials a designer chooses, Nike requires all designers to use the tool in their design process. The EcoIndex will hence include more and more such ‘designer focused’ data as time goes by.

Higgs Index

The Higgs Index is indicator based tool for apparel that enables companies to evaluate material types, products, facilities and processes based on a range of environmental and product design choices. It is designed to be a transparent and open-source tool for comprehensive measurement of apparel and footwear products. It measuring desired environmental outcomes for: water use and quality; energy and greenhouse gas; waste; chemicals and toxicity.

It asks practice-based, qualitative questions to gauge environmental sustainability performance and drive behaviour for improvement. It builds largely on the Eco Index and Nike’s Apparel Environmental Design Tool, but adds extensive pilot testing and practise runs to optimise its application in the context of large multi-national companies such as Walmart.

The index was originally developed for apparel products and environmental performance. It is already clear however, that in the future its scope will expand to include foot wear and social and labour impacts.
Methodologically, it is based on life-cycle thinking and spans the apparel life cycle (materials, manufacturing, packaging, transportation, use, and end-of-life).

Importantly: The members aboard the Sustainable Apparel Coalition comprise together more than a third of the global apparel and footwear market – which gives the Higgs Index a very serious chance to make an impact on a vast quantitative scale.

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